- The Washington Times - Friday, May 18, 2001

The nation's leading index for "socially responsible" investing has booted Wal-Mart, the world's largest retailer, from its ranks because of the company's dealings with a repressive military regime in Burma and purchases from sweatshop factories in China and Central America.

In a report released yesterday, New York-based KLD & Co., which compiles the Domini 400 Social Index, concluded that Wal-Mart's activities no longer meshed with the index's goal of promoting investment in companies that help improve labor standards overseas.

"We've been looking at them for years," KLD President Peter Kinder said. "It was not a quick decision, but we had to make it."

The move prompted at least one mutual fund to sell its Wal-Mart holdings, and a group of investors who follow the teachings of the Roman Catholic Church may follow suit.

Wal-Mart, of Bentonville, Ark., said it respected KLD's decision but insisted that it is working to ameliorate sweatshop conditions in the factories from which it buys its products.

"Wal-Mart makes every effort to do business only with suppliers that do business legally and ethically," spokesman Bill Wertz said.

Mr. Wertz said Wal-Mart, which posted sales of $191 billion last year, conducts 200 factory inspections each week to monitor its vendors' activities.

The Domini 400 is a stock index analogous to the S&P; 500 but whose members KLD determines on the basis of whether the 400 companies adhere to socially responsible principles. Those include, for example, avoiding gun manufacturers and tobacco companies.

Several mutual funds use the Domini 400 to make investments, including New York-based Domini Social Investments Ltd., which manages the $1.4 billion Domini Social Equity Fund that is based on the Domini index. As a result of the change, which took effect Feb. 1, the firm dumped $60 million in Wal-Mart stock.

Sigward Moser, president of Domini Social Investments, said the firm tried to discuss the issues with Wal-Mart before it was removed from the index, but the company was "very unresponsive."

The $40 million Catholic Values Investment Trust, which invests in companies that do business consistent with "core Catholic values," also will review its investments in Wal-Mart as a result of the KLD decision, said its director, Walter Miller.

The decision is a blow to Wal-Mart, which had cultivated a reputation among socially responsible investment firms as being an industry leader in areas such as employee relations and community involvement.

Wal-Mart had been part of the Domini 400 since the index's inception in May 1990.

"The report is a real embarrassment to Wal-Mart, though it won't be a big hit on its stock," said Simon Billeness, a senior analyst with Boston-based Trillium Asset Management. "But it will make it much less likely that we own the stock."

Trillium invests about $600 million for clients on the basis of socially responsible criteria and does not hold Wal-Mart in its portfolio, Mr. Billeness said.

In its report, KLD said Wal-Mart has not followed other retailers in agreeing not to buy from Burma, which is under a strict U.S. trade and investment embargo aimed at forcing the repressive military junta that governs the country to relinquish power.

KLD also said that Wal-Mart lied about its contracts with a sweatshop in China and that it refused to help independent observers gain access to its suppliers' factories in Central America.

Wal-Mart did not respond to the individual charges.

Charlie Kernaghan, director of the New York-based National Labor Committee, a labor rights advocacy group, said Wal-Mart's focus on the bottom line has driven it to ignore labor conditions overseas.

"In any country, if you find the worst factories, you'll find Wal-Mart," Mr. Kernaghan said.

In recent years, socially responsible investing has gained favor as mutual funds based in the principle have demonstrated they can deliver returns comparable to traditional investors.

The Domini Social Equity Fund, for example, has had a 19 percent annual return to investors over the last 10 years. That performance barely outpaced funds based on the S&P; 500, which delivered a 17 percent return, though Domini lagged behind the S&P; last year.

Wal-Mart's stock closed yesterday at $51.76, up 11 cents, on the New York Stock Exchange.

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